NetsUnion Clearing Corp, China's newly established clearing house for online payments supervised by the People's Bank of China, will clear half of the transactions that are expected to be made during the upcoming Nov 11 Singles Day shopping festival.
The move comes as a blow to Alibaba-owned Alipay, which had hitherto cleared most of the transactions during the shopping extravaganza.
China's central bank had decided to set up the nationwide clearing house for online payment services to protect consumers and the financial system from the mushrooming internet-enabled model of finance that currently accounts for over 3 percent of the country's non-cash payments.
NetsUnion Clearing Corp is expected to directly channel 50 percent of the transactions on Nov 11 between third-party companies and banks, thereby slashing access to third-party payment giants such as Alipay. The volume of transactions that would be cleared on Nov 11 is expected to be the highest that the clearing house would process on a single day since it started operations in March this year.
"NetsUnion will only process 50 percent of transactions on Nov 11, because establishing the infrastructure for clearing services takes time," said a manager in charge of the technology department of the NetsUnion, who did not want to be named.
"The company will take over all the clearing service from Alipay in the future, and also from other third-party payment providers, as required by the central bank."
The same standards and rules will apply to all payment providers, said another manager with the company.
All payment transactions handled by third-party providers, if related to bank transactions, would be routed through the new clearinghouse by the end of June 30 next year, according to a document issued by the central bank.
Eighteen large Chinese banks are connected with the clearing house, while nine of the 115 licensed third party payment providers in the country have started to channel transactions through the new platform, according to the people familiar with the matter.
By the end of this year, at least 200 banks and 40 companies are expected to connect with the clearing house, the people said.
The amount of transactions channeled through the clearing house has been increasing, but the company did not disclose any figures for now.
China's third-party online payment market had 160 billion transactions valued at 100 trillion yuan (.15 trillion) last year, up 100 percent year-on-year, according to data from the central bank.
The large amount of offsheet online transactions that were conducted last year had alarmed the government, because unlike transactions backed by banks, untraceable transactions through third-party payment providers may include potential money laundering and other illegal practices.
An all-in platform will help to curb risks by making the transaction data transparent, according to the sources.
At an opportune time, the clearing house also plans to come out with standards that would seek to unify the entire third-party payment industry in China.
The company will also ramp up its market presence by promoting its own quick response code scanning system to process mobile payments.
The objective of the whole exercise is to ensure that the mobile payment industry progresses on the right track with adequate government support and controls, said an unnamed official from the central bank.